Having a Product or Service and a Decision Can Put You in Business Today

Want to start a business quick, but don’t know how?

The easiest and most common business to start is a sole proprietorship. All that is needed is a product or a service and a decision to do business. Viola! You now own a business. There aren’t any legal steps to take at the state or federal level.

You will have to get a business license or permit with the city or municipality you will be conducting this business in. This basically requires filling out an application and paying a fee.

To understand how a sole proprietorship works, it means that the business is unincorporated. This means that you own the business by yourself and there isn’t any separation between you and the business. You get all the profits as well as suffer all the losses, liabilities and are responsible for all debts. This could be a thing like: defaulting on a loan, not enough money to pay suppliers, or lawsuits. Creditors will have the right to sue for your personal belongings.

A sole proprietorship can be operated under your legal name, but if you choose to do business with a trade name, then you will have to file a fictitious name, same as a DBA (doing business as) name. Just be sure to research that no one else is doing business with that name to avoid conflict.

Once your business is established, consider forming an LLC at least to ensure your personal property is kept out of the hands of creditors. If that isn’t an option for you, then opt for the following insurance types: Health Coverage, Auto Insurance, Disability, Property and Liability coverage for personal protection. 

How do taxes affect the sole proprietor?

Remember earlier how I said there isn’t any separation between you and the business? Well this affects how the business is taxed. Since you and the business are one and that makes the business income your income. You don’t get taxed separately like for a corporation. You would file a Schedule C or Schedule C-EZ, which is part of the 1040 tax form. If you don’t have employees, then you would use your social security number and not have to worry about having an EIN.

If your business starts rolling in the doe, so to speak, then you’re required to pay self-employment tax. It is wise to put money aside periodically to cover this expense.

Are there any drawbacks to being a Sole Proprietor?

Yes, there are a few drawbacks. There’s the unlimited personal liability you are responsible for since there isn’t any separation between you and the business.

There’s also a challenge to raising money, because there aren’t any stocks in the business to sell, which ultimately means there won’t be any investors.

Banks are also hesitant to lend money, because sole proprietors tend to appear untrustworthy to pay back a large sum of money if the business goes under. Business credit is an alternative funding source.

As a sole proprietor, you are ultimately responsible for the success of your business. The good thing about that is you have complete control over all decisions and can change the structure whenever you want. Starting this type of business is the easiest and least costly business structure to establish.

 

Newbies 5 Basic Principles to Understanding an LLC

What is an LLC? An LLC stands for Limited Liability Company. The main reason to set up an LLC is to have personal asset protection and the simplicity it offers by way of setup and applicable tax laws.

Ownership:

A single person, or multiple people can own an LLC. It’s managed by its members and not by a board of directors.

Personal Protection:

It is its own entity and separate from its owners. What this means is that the LLC is responsible for any lawsuits and debts incurred and not its owners.

Pass-Through Taxation:

An LLC gets its own federal tax ID, or EIN that is basically the same as the company having a social security number. LLC’s have what is called a “pass-through taxation.”

What this means is that the profits of the company go to its owners and then the owners are taxed once. Unlike a corporation where the corporation is taxed for the profits and then the members are taxed for the same profits. In other words, double taxation.

Less Regulation:

The owners of an LLC do not have to be US citizens or permanent residents. There is less regulation which means less paperwork required for set up. An LLC does not have to assign formal roles, hold annual meetings, or record company minutes.

Business Credibility:

With an LLC, your business is perceived as a formal business structure and demand peers and customers to take your business seriously, which help build your business credit history, and have access to business funding.

A downfall to an LLC is that you cannot list it on the stock market or get funding from Venture Capital firms.

The 5 Basic Steps to Forming an LLC:

  • Step 1. Select a State – Preferably where the business is conducted
  • Step 2. Name your LLC – Name your company
  • Step 3. Choose a Registered Agent – Person responsible to receive legal and tax documents on behalf of the business
  • Step 4. File the Articles of Organization – Document filed that legally creates the LLC as a registered business entity within the state
  • Step 5. Create an Operating Agreement – The legal agreement used to regulate the inner operations of the business conducive to its owners

The Importance of Good Credit

It amazed me to actually meet someone without a credit history, not a bad credit history, but no credit history because this person has always paid for everything with cash.

We live in a society that runs on credit. There is always a business out there to extend credit to you so you can buy a house, car, start a business and everything in between.

However, credit isn’t just handed over. A person has to prove their creditworthiness. Lenders base their decision on your three digit credit score.

Even if you’re not looking for a loan for a house or a car, your credit history impacts practically everything you do in this world. Credit determines the quality of your living.

It’s a determining factor on where you live, insurance rates, and even if you gain viable employment, or starting a business. Lenders want to make sure they are dealing with reliable and responsible people.

Even if you are not in the market to buy a house, landlords consider the rental agreement/ lease as a loan. They are loaning you a place to live in exchange for payment. And if your credit history is bad, or you have none you can get denied for an apartment or be charged a higher security deposit and rent than the other tenants for the same living conditions.

Now if you are in the market to buy a car and haven’t saved up for the entire cost, you will need a loan. Your credit will determine the type of vehicle the lender will offer to you as well as the monthly payment and the interest rate.

Most employers check applicants credit history to determine financial responsibility. Their concern also includes making sure that the new hire doesn’t have more debt than the income being offered. Good credit equates to having good character.

If you want to start a business or grow the one you have, it takes capital. And in case you don’t have cash lying around, you will need credit to qualify for a business loan.

Credit is required to get utility service. Gas, light, cable and phone companies do credit checks before extending service and oftentimes require security deposits with stipulations that if one payment is missed, the money is forfeited.

As you see, having no credit isn’t that much better than bad credit because it doesn’t show lenders your ability to pay debt. And unfortunately, your payment history is a reflection of whether or not the rest of your life is on track.

Begin to establish good credit today by opening a bank account, getting copies of your credit reports, and apply for credit with companies who report to the three major credit bureaus.

7 Steps for Business Owners to Minimize Internal Conflicts

Successful business owners carry with them an “I can do” attitude, always believing in themselves and their potential. As a new startup, you may not have developed that kind of confidence yet. But in order to increase your business profitability and minimize internal conflicts implement the following:

  1. Gain self-confidence:

Think positive about yourself no matter what the situation. Realize that mistakes happen and it’s all a part of the growing process. Believe in your ability to do business in a professional way.

  1. Learn the art of negotiation:

Be attentive. Listen carefully to the other side to be able to ask appropriate questions that will give everyone involved understanding of the situation. Know what you want ahead of time and how to ask for it. Be prepared for multiple outcomes. Don’t underestimate yourself. Remain calm at all times.

  1. Define your passions and go after them:

If you truly want to be happy, then do what you love. Develop your skills in that area. Don’t listen to the naysayers that think what you love to do is not a job. It doesn’t have to be your job. Make it your business. Make it your life.

  1. Understand and incorporate a work life balance:

Dedicate your time appropriately. Time for study, time for work, time for family, time for fun. Keep an agenda that is flexible to leave room for updates and changes so that you can stick to it especially if you are more of a spur of the moment type person.

  1. Become more specialized in your chosen fields:

Learn, learn and then learn some more. Take classes, attend seminars and read books. Practice your skills until you become the expert you long to be. Get certified to increase your value.

  1. Become culturally aware:

Understand that everyone doesn’t operate with the same integrity as you do, but be sure to remain respectful of clients, vendors and the like. Don’t be quick to give in, but give careful consideration. Stand your professional ground.

  1. Take your business to the professional level:

You have opportunities and resources, like business credit for example, that are available to support the day-to-day operations and grow the business without the stress of worrying where the money is coming from.

The online application is easy to complete without a hard pull on your personal credit, and funding estimates are given within 24 hours of applying.